The recovery that never was, took a turn for the worse in the latest survey of small businesses. The NFIB reports Small-Business Optimism Index Dips for Second Consecutive Month in April
The month of April marked a second consecutive month of decline in small-business optimism; NFIB’s index dropped to 91.2 in April – a much smaller dip than the previous month, but still another sign of the nation’s anemic economic recovery. While reports of net jobs created by small firms stayed positive, the numbers posted did not match the surprising gains cited in last week’s Labor Department report. This suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street—the ones traditionally responsible for leading the country out of recessions, are still struggling to hire.
The net percent of owners expecting better business conditions in six months slipped another 3 points to negative 8%, 18 percentage points worse than in January. Uncertainty is the enemy, and there is plenty of it to convince owners to “keep their powder dry”.
Only 50% of all firms reported making capital outlays last month, down 1 point from the month prior. The percent of owners planning capital outlays in the next three to six months fell 3 points to 21%, a recession level reading. Money is cheap, but most owners are not interested in a loan to finance equipment they don’t need. Prospects are still uncertain enough to discourage any but the most profitable and promising investments.
Overall, 92 percent reported that all their credit needs were met or that they were not interested in borrowing. Eight percent reported that not all of their credit needs were satisfied. Three percent reported financing as their #1 business problem, so “credit supply” is not a problem for the overwhelming majority. For the banks with money to lend, “credit demand” is weak. The historically high percent of owners who cite weak sales means that, for many owners, investments in new equipment or new workers are not likely to “pay back”. This is a major cause for the lack of credit demand observed in financial markets along with the deficiency in housing starts, a million units below “normal”. Thirty-two percent of all owners reported borrowing on a regular basis, 4 points above the record low.
The “get up and go” usually present in the small business sector after a recession “got up and went” somewhere. For the small business sector, this is the worst recovery on record. The recovery in the small business indicators looks especially anemic in comparison to the recovery after the 1980-82 recession period, the era with a depth most comparable to our most recent experience.
Owners report that inventories are now in balance with expected sales, but these expectations are muted, providing little reason to hire more workers. Capital spending remains low because the prospects of generating the additional sales needed to pay off loans used to finance expansion are not good. Selling prices are rising sharply not because costs are rising but because the “fire sale” needed to bring inventories and excess retail capacity into balance is about over. New construction and services are labor intensive and dominated by small firms. Spending must recover here to get employment up and running. Maybe after consumers are through buying cars they will get their nails done.
Small Business Outlook
If you want to know where small business hiring is going, take a look at the blue line in the above chart. Companies saying this is a “good time to expand” is at rock bottom levels.
In regards to the latest BLS monthly jobs report, the NFIB concludes “the bulk of new hiring is happening in larger firms”. I conclude it did not happen at all. For details of my analysis please see Digging Still Deeper In Friday’s Jobs Report; What’s the Real Unemployment Rate?
Mike “Mish” Shedlock
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